Foreign Currency Transactions, EPS, and Revenue Recognition Flashcards

A set of 50 vocabulary flashcards covering foreign currency transactions, earnings per share (EPS), and revenue recognition (ASC 606) based on lecture notes.

Functional Currency

The currency of the Primary Economic Environment where the company mainly generates and spends cash.

Foreign Currency

Any currency other than the functional currency of the reporting entity.

Current Exchange Rate

The immediate Spot Rate used for currency conversion on any given evaluation date.

External Terms

Transactions whose settlement terms are fixed in a currency different from the functional currency.

Initial Measurement Date

The date on which a transaction is first recorded using the spot rate.

Subsequent Balance Sheet Date

The period-end date when unsettled monetary accounts are updated to the current spot rate.

Settlement Date

The final cash payment day where the ultimate spot rate determines the closing balances.

Monetary Accounts

Balance sheet accounts like Accounts Receivable and Accounts Payable that are revalued at year-end.

Nonmonetary Accounts

Accounts such as Inventory, Equipment, and Land that are maintained at historical cost and not revalued.

Direct Quote

The number of functional currency units needed to purchase $1$ foreign currency unit (e.g., $1.20$ per $€1$).

Transaction Gain (Receivable)

Occurs when the spot exchange rate rises (Foreign Currency strengthens) for an asset account.

Transaction Loss (Payable)

Occurs when the spot exchange rate rises (Foreign Currency strengthens) for a liability account.

Historical Asset Valuation Trap

An examiner's trick where they suggest adjusting PPE or Inventory values based on exchange rates; these must stay at historical cost.

Multi-Year Accumulation Overshoot

A pitfall where students calculate gains from inception rather than strictly the change between the prior year-end and settlement.

Accrued Interest Blindspot

Failure to apply exchange rate revaluation to the interest payable balance of a foreign-denominated note.

Basic EPS (BEPS)

Earnings per share required for all public entities, calculated strictly for common stock.

Diluted EPS (DEPS)

Earnings per share presented with equal prominence to Basic EPS for entities with complex capital structures.

Complex Capital Structure

A structure containing potential common shares such as stock options, warrants, or convertible bonds.

S.I.M.P.L.E. Mnemonic

Stock options, If-converted, Mandatory basic, Potential common shares, Lowest EPS goal, Equal prominence.

Cumulative Preferred Stock Numerator Rule

Deduct the current year annual dividend amount from Net Income even if it was not declared.

Noncumulative Preferred Stock Numerator Rule

Deduct the dividend amount from Net Income only if it was explicitly declared during the period.

Stock Dividends and Splits Date Rule

Treated as if they occurred at the beginning of the earliest period presented, regardless of historical date.

Dilutive Security

A potential common share that reduces basic EPS or increases basic loss per share.

Treasury Stock Method

Assumes options/warrants are exercised and the proceeds are used to buy back shares at the average market price.

If-Converted Method

Assumes conversion of bonds or preferred stock at the beginning of the period, adding back after-tax interest or dividends.

Antidilutive Security

A security that increases EPS or decreases loss; it must be excluded from final DEPS presentation.

EPS Control Number

Basic EPS from Continuing Operations, used to determine if a security is dilutive or antidilutive.

I.S.T.A.R. Mnemonic

Identify contract, Separate obligations, Transaction price, Allocate price, Recognize revenue.

Distinct Good or Service

A promise where the customer can benefit from the item on its own and it is separately identifiable within the contract.

Variable Consideration

Transaction price components measured using either the Expected Value or the Most Likely Amount.

Constraint Rule

Revenue only includes variable amounts if it is probable that a significant reversal will not occur.

Significant Financing Component

A price adjustment for the time value of money when payment and delivery are more than $1$ year apart.

Noncash Consideration

Consideration measured at the fair value of the asset received or the standalone selling price of the goods promised.

Consideration Payable to Customer

Cash paid to a customer, such as a coupon, treated as a reduction of the transaction price.

Standalone Selling Price (SSP)

The price at which an entity would sell a promised good or service separately to a customer.

Adjusted Market Assessment Approach

A method to estimate SSP by evaluating the market and identifying the price customers are willing to pay.

Expected Cost Plus a Margin Approach

A method to estimate SSP by forecasting the costs of satisfying an obligation and adding a profit margin.

Residual Approach

A method to estimate SSP by subtracting observable SSPs of other goods/services from the total transaction price.

Agent

An entity that does not control the performance obligation and reports revenue only as the net commission.

Principal

An entity that controls the performance obligation and reports revenue as the gross amount.

Material Right

A separate performance obligation created by a coupon or option that the customer would not otherwise receive.

O.W.N. Mnemonic

Ongoing consumption, Work-in-process control, No alternative use + Enforceable right (the 3 pillars of Over-Time transfer).

Input Method

Measures progress based on entity efforts/inputs like costs incurred ($\text{cost-to-cost}$) or labor hours.

Output Method

Measures progress based on direct results or value transferred such as units produced or milestones achieved.

Cost-to-Cost Formula

$\frac{\text{Cumulative Costs Incurred}}{\text{Total Estimated Costs}}$; used to determine completion percentage.

Construction in Progress (CIP)

An asset account used in long-term construction to record cumulative costs and recognized gross profit.

Progress Billings

A contra-asset account representing the amount the customer has been invoiced for a long-term contract.

Immediate Overall Expected Loss

Under US GAAP, the entire projected loss on a contract must be recognized immediately regardless of completion percentage.

Uninstalled Materials

Items that must be excluded from input method calculations to prevent artificial acceleration of revenue recognition.

Final Delivery CIP Closing

The entry at the end of a project where Progress Billings is debited and CIP is credited to reach $0$ balances.